Special Feature : GROUP INTEGRATION

A group interview in regard to Shinsei Bank's corporate governance was conducted among Mr. Ernest M. Higa, Outside Director, Mr. Hideyuki Kudo, President and Chief Executive Officer, and Mr. Shigeki Toma, Advisor to Shinsei Bank (the previous President and Chief Executive Officer), with Mr. Ken Takamiya, a bank sector analyst at Nomura Securities Co., Ltd., serving as the moderator. (Interview was conducted in April 2015)

"We want to be free to pursue new concepts, to think out of the box, in order to provide new types of financial services to Showa Leasing’s customer base."

Nakamura:Showa Leasing possesses a customer base that comprises some 35,000 small and midsize enterprises (SMEs). What needs does this customer base have that an integrated Shinsei Bank Group will be able to address and what is the potential for revenue generation from meeting these needs?

Kiyotani:You noted that we have a customer base of 35,000 SMEs, but that number is actually as large as 53,000 if we include companies whose contracts expired over the past five years and presently do not have any active contracts with Showa Leasing. Showa Leasing’s business includes the sale of life insurance to customers of SMEs as well as the sale of Japan-style operating leases. Five years ago, the life insurance business generated revenues of only about ¥100 million but that figure has expanded to ¥500 million this year. The operating lease business has made equity investments totaling around ¥7 billion over the past several years. It might be interesting if, for example, Showa Leasing were to integrate its business with Shinsei Bank’s business for high-net-worth individuals. Also, SMEs have a considerable need for business succession–related services, and we intended to engage in efforts to meet those needs with new services. In addition, banks have been able to provide finance leases for some years now and in the future we envision Showa Leasing managing the leases made by Shinsei Bank. By collaboration with APLUS, we also will be able to provide our customers with a service that combines smaller scale financing leases with shopping credit services. For that purpose, we plan to create a platform that suppliers and other customers will find easy to use. I think that aiming for more integration in our services, instead of the cooperative efforts we have focused on to date, will prove extremely positive for our Group.

Kudo:The customer introduction activities that we referred to as cross-selling have not proven to be very productive. Going forward, we plan to meet the financing needs of Showa Leasing’s potentially 53,000-strong customer base by creating a new financing mechanism that uses methods different from those employed in the past. We are also seeing the emergence of various new techniques, including methods for holding assets, which could be interesting for us.

"The strengths of our unsecured personal loan business include its screening and servicing capabilities, its neutral positioning and speedy IT capabilities."

Nakamura:The Bank of Japan has introduced negative interest rate, but the Shinsei Bank Group’s core strengths lie in non-traditional commercial banking business, such as consumer finance, credit card, settlement services, and leasing. Considering these strengths and your Group integration, what changes do you expect to see in the Group’s competitiveness and market shares as the central bank’s negative interest rate policy shrinks margins of domestic operations?

Sugie:It is a well-known fact that unsecured personal loans have thick margins. Without a doubt, this is one area where we expect to leverage the overall strengths of the Shinsei Bank Group. However, it is also an area where we expect to see an increase in competition. We are not a mega player that can cover the entire market on our own. Consequently, we will continue to promote alliances with regional financial institutions in Japan and overseas financial institutions. However, we need to create a flexible supply chain that clearly delineates roles appropriate for us and our business partners. For example, asking our partners to introduce their customers to us and then ensuring that we have the required screening and servicing capabilities as well as a sufficiently robust IT platform to provide services to those customers. At present, the trend in Japan is from nonbanks to banks and we will firmly develop strategies that correspond to this directional trend. Within the unsecured personal loan industry, it is very clear what a traditional bank is able to do and what it cannot do. Shinsei Financial has carefully honed its capabilities in business areas where traditional banks do not operate, such as lending to high-risk borrowers, some of whom have become laden with multiple debts, which requires working closely with those borrowers and negotiating debt repayment schemes and helping them get back on their feet.

Nakamura:Looking back over the past three years, your major competitors appear to have established a lead in the credit guarantee business and are capturing customers and further enhancing their know-how in this area. As you attempt to cut into their positions, where do you expect to display your strengths and differentiate yourself from the competition?

Sugie:In this business, one needs screening and servicing capabilities appropriate for dealing with high-risk borrowers. There are only four major companies capable of performing these functions at the required levels, and one of them is Shinsei Financial. Moreover, Shinsei Financial is in an extremely advantageous position vis-à-vis its competitors because it is not affiliated with the mega bank groups and can be trusted to provide its service using sound mathematical methodology. At Shinsei Financial, we practice thorough "dashboard management," with all management decisions and process controls driven by numerical data. As a result, we are able to provide our customers with highly transparent processes and all decisions can be easily explained. We will continue to deliver solutions that leverage our expertise and strengths based on deep market knowledge that enables us to accurately predict what will happen regardless of the decisions made. Last but not least, I must mention our IT capabilities. IT is one of the major costs of running a consumer finance business, as the lion’s share of the business’ processes and procedures are now fully automated. Our open core system was developed in-house, which means we possess all source codes and our staff is able to respond immediately whenever we feel the need to make an improvement. As a result, our IT upgrades are achieved remarkably quickly.